The effect on housing quality of reducing the structure tax rate

The implicit market approach of Rosen is combined with a dynamic model of producer behavior to determine the conditions under which reducing the structure tax rate leads housing quality to rise. Specifically, it is found that, in the stationary state, quality will rise if capital is a noninferior input. Since it is argued that quality cannot be accurately measured, this conclusion is then tested with an unobservable variables model where quality is the unobservable. A comparison between the responses of quality and housing quantity to reductions in the tax rate is made.